Difference btw Pension plans and MF SIP

POSTED BY Mohan Kishor ON January 3, 2011 11:15 am COMMENTS (3)

What is the difference between NPS or any pension plan and Mutual Fund SIP ?? Even in NPS also, we have to purchase annuity for minimum 40% of the matured value. the same can be done with Mutual Fund SIP maturity amount also.

then if buying the annuity at the end of accumulation is the essence of pension plans, what is the difference during accumulation period between NPS and MF SIPs???/

Any body, please throw some light on this topic….

3 replies on this article “Difference btw Pension plans and MF SIP”

  1. Milind Kotibhaskar says:

    The purpose of MF SIP and NPS are little different. When you are looking for a pension products, it should be 1. Very long term only 2. Should be relatively safe 3. Difficult to exit easily 4. Less charges. NPS satisfies all these criteria. You can invest maximum 50% in equity. And money is invested only in Index funds. This makes NPS safe and and the same time you can get decent returns. Don’t expect mind boggling returns which you may get in MF SIP. NPS is “slow and steady” product.

    If you have other long term goals such as education or marriage or home buying, you can think of MF SIP. Here idea is, you can afford to take some risk and get good returns.

    Hope this satisfies you.

  2. G S says:

    One difference is that with Mutual Funds you have the choice to diversify across various funds – diversified or thematic or ETF etc, and switch among them if needed. In NPS you are likely stuck with whatever overall choices the fund manager is making.

    Also, importantly, you can easily book profits with MF SIPS and not with NPS.

  3. In the Accumulation phase there’s no such difference as you contribute and Fund manager Manages according to your selection of allocation.BUt yes , there is a diffrence in the structure of product as you cannot withdraw out of NPS( except for Crticial Illness or Buying/building of house) before the age of 60, but in case of MF it is flexible enough to take any decision.
    Also for distribution phase you can plan the distribution by making it tax effective by allocating your total corpus to SSS, POMIS,MF MIPsor in any other tax effective manner you like as per your profile. but in case of NPS you compulsorily will have to opt for annuity ( atleast for 40% amount after 60 years of age)

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